A bond's coupon rate tells you what the issuer promises to pay, but it does not tell you what you will actually earn. If you buy a bond on the open market, your real return depends on the price you pay for it. Pay less than face value and your return is higher than the coupon; pay more and it is lower. This bond yield calculator turns the four numbers you see on any quote — the market price, the face value, the coupon rate, and the years left to maturity — into the two yields that matter: current yield and approximate yield to maturity (YTM).
Type in your figures and both yields update instantly, along with whether you are buying at a discount or a premium and how much total coupon income the bond will throw off until it matures.
How to Use
- Enter the Current Bond Price — what the bond is trading for in the market right now. A price of $950 means you pay $950 for every $1,000 of face value.
- Set the Face (Par) Value — the amount the issuer pays you back at maturity. Most individual corporate and municipal bonds have a $1,000 face value, but bond funds and institutional blocks can be $10,000 or $1,000,000.
- Type the Annual Coupon Rate — the fixed annual interest the bond pays as a percentage of face value. A 5% coupon on a $1,000 bond pays $50 per year.
- Enter the Years to Maturity — how long until the principal is returned. Shorter maturities make price moves have a smaller effect on YTM; longer ones amplify it.
- Read the result card: the Current Yield is your cash return this year, and the Yield to Maturity is your total annualized return if you hold the bond to maturity, including the discount or premium you locked in.
The calculator also shows whether the bond trades at a discount (price below face value), at par (equal), or at a premium (price above face value), plus the sum of all coupon payments you would collect over the remaining life.
The Two Yields, Explained
Current yield is the simplest return measure: it is the annual coupon divided by the price you paid.
Current Yield = Annual Coupon ÷ Bond Price
On a $1,000-face, 5% bond trading at $950, the annual coupon is $50, so the current yield is $50 ÷ $950 = 5.26%. Notice this is already higher than the 5% coupon — buying at a discount boosts your cash return.
Yield to maturity (YTM) is the more complete number. It assumes you hold the bond until maturity and reinvest every coupon at the same rate, and it folds in the difference between what you paid and the $1,000 you receive back. This calculator uses the standard Wall Street approximation:
YTM ≈ (C + (FV − P) ÷ n) ÷ ((FV + P) ÷ 2)
Where C is the annual coupon, FV is face value, P is the price paid, and n is years to maturity. On the same $950, 5%, 10-year bond: C = $50, the annualized discount gain is ($1,000 − $950) ÷ 10 = $5, and the average invested amount is ($1,000 + $950) ÷ 2 = $975. So YTM ≈ $55 ÷ $975 = 5.64%. The extra 0.38 percentage points over current yield is your annualized gain from buying below par.
Discount vs. Premium: Why It Matters
Bond prices and interest rates move in opposite directions. When market rates rise, existing bonds with lower coupons become less attractive, so their price falls — and their yield rises to match the new market. When rates fall, older high-coupon bonds become more valuable and trade at a premium.
- Discount bond (price < face): YTM is higher than the current yield, which is higher than the coupon. You are buying future income on sale.
- Par bond (price = face): coupon, current yield, and YTM are all equal.
- Premium bond (price > face): YTM is the lowest of the three. You are paying extra today for the above-market coupon, and you "lose" that premium back at maturity.
A common mistake is chasing the highest coupon without checking price. A 6% bond bought at $1,050 has a current yield of only 5.71% and a YTM near 4.88% over five years — it can easily undercut a 5% discount bond.
Examples
Example 1 — The worked example. You pay $950 for a $1,000-face bond that pays a 5% coupon and matures in 10 years. The annual coupon is $50, the current yield is 5.26%, and the approximate YTM is 5.64%. Because you bought $50 of annual income plus a $500 eventual discount recovery, your total annualized return exceeds the coupon.
Example 2 — A zero-coupon-style holding. Strip out the coupon (0%) on the same $950, 10-year, $1,000-face bond. Current yield is 0%, because the bond pays nothing each year. The YTM, however, is still about 0.51% — your entire return comes from collecting $1,000 at maturity versus the $950 you paid. This is how zero-coupon bonds are priced and bought.
Example 3 — An institutional block. A portfolio manager buys a $1,000,000-face bond at $950,000 (95 cents on the dollar), paying a 4% coupon with 20 years left. Annual coupons are $40,000, current yield is 4.21%, and the approximate YTM is 4.36%. The math scales linearly, so a million-dollar position works exactly like the thousand-dollar retail bond.
Example 4 — Paying a premium. You grab a 6% coupon bond at $1,050 with 5 years left. Annual coupons total $300, but current yield is only 5.71% and the approximate YTM falls to 4.88%, because the $50 premium you paid is forfeited at maturity. Comparing this YTM to a competing 5% discount bond's ~5.6% tells you which is the better deal.
FAQ
What is the difference between current yield and yield to maturity?
Current yield is just this year's coupon income divided by the price you paid. Yield to maturity (YTM) is your total annualized return if you hold the bond to maturity, which also includes any gain from buying below face value or loss from buying above it. Current yield ignores the price-versus-par piece; YTM includes it.
How do I calculate the yield on a bond?
Divide the annual coupon payment by the bond's current price for current yield. For yield to maturity, use the approximation formula YTM ≈ (C + (FV − P) ÷ n) ÷ ((FV + P) ÷ 2), where C is the annual coupon, FV is face value, P is the price, and n is years to maturity. Enter those four numbers above and this calculator does it for you.
Why is my yield higher than the coupon rate?
Because you bought the bond at a discount. If a 5% $1,000 bond trades at $950, you still collect $50 a year (5% of face) but paid only $950 — so your current yield is 5.26%, and your YTM is even higher once the eventual $50 gain at maturity is spread across the holding period.
What does it mean when a bond trades at a premium?
A premium bond trades above its $1,000 face value, usually because its fixed coupon is higher than today's market rate. Your YTM will be lower than the current yield, and lower than the coupon, because the extra purchase price is not returned at maturity.
Is this YTM exact?
The figure shown is the standard approximation used by investors and broker screens. The exact YTM solves a discounted-cash-flow equation numerically and can differ by a few hundredths of a percentage point, especially for long maturities or deeply discounted bonds. It is accurate enough for comparing bonds and spotting value.
Do I earn the YTM if I sell early?
No. YTM assumes you hold the bond all the way to maturity. If you sell early, your actual return depends on the price at sale — which moves with interest rates. Selling before maturity can give you more or less than the YTM projected.
Disclaimer
This bond yield calculator is provided for informational purposes only and does not constitute financial, investment, tax, or legal advice. Yield figures are approximations based on the inputs you enter; actual returns depend on prices, reinvestment rates, call provisions, credit quality, taxes, and transaction costs that this tool does not model. Always verify quotes and terms with your broker or a licensed financial advisor before buying or selling bonds.